What Happens if the Real Estate Investor Defaults?
As counterintuitive as it seems, if Steed Talker Realty & Investments doesn’t pay off the Private Investment, the Private Investor stands to make even more money on their investment! In the company’s business model property purchases are made at substantial discounts. If it isn’t discounted, the company doesn’t buy! If it isn’t profitable the company doesn’t buy!
Because we purchase below market rates, foreclosing can be more profitable for the Private Investor than it is to collect principle and interest. Please understand, Steed Talker Realty & Investments has NO intention of defaulting and has never defaulted on a Private Investment, therefore, the opportunity to foreclose is almost null. Nevertheless, the question of default always arises so let us take a moment and discuss the options should default occur. In the case of default, foreclosure is always a possibility but is almost always a last resort as there are other options that will probably appeal to all parties concerned.
Options in the Event of Borrower Default
1) The Private Investment could be restructured by modifying the payment schedule on the promissory note. For example, let’s say the borrower is behind on payments to the Private Investor. Steed Talker Realty & Investments can and would like to keep the house, but the Company can’t come up with enough money to bring the Private Investment current in one lump sum. One option might be that the Private Investor could let the company continue to make regular payments plus an extra payment on its arrearage. Another option to consider is that the Private Investor could simply add the arrearage to the principal balance and extend the term of the loan. In this case the Private Investor would be collecting interest on interest for the entire remainder of the loan. There are almost always ways to work it out if both parties are willing.
2) The Private Investor may prefer to have Steed Talker Realty & Investments deed the property to them. This option is known as “Deed in Lieu of Foreclosure”. This is an opportunity for the Private Investor to get a property at a greatly discounted price. When this happens, the Private Investor can create tremendous profit by reselling the house without the effort or expense of foreclosure.
3) If left with no other choice, the Private Investor can foreclose. Foreclosure isn’t as time consuming and costly a process as most people think. It’s as simple as sending the Private Investor’s note and deed of trust to an attorney and saying ‘foreclose’. All the Private Investor has to do then is sit back and wait. More often than not, before foreclosure is complete, someone will be calling the Private Investor’s attorney with a payoff letter, and the loan will get paid off. When this happens, the Private Investor will collect all accrued interest, the principal balance, all attorneys’ fees, court costs, and all other expenses that have incurred in connection with the loan.
If the Private Investor does owning the house that doesn’t mean he/she has to keep it. It can be sold immediately at a fair sale price and still produce a profit over and above the already high yield on the loan.